Only 2 Ways to Fight Gentrification (you’re not going to like one of them)

Actually, I’m pretty sure Option #2 is precisely what Jacobin Mag et. al. would prefer.

You seem to have missed their logic: by restraining development, the pressure will continue to build, until such time as the displaced and disempwered masses rise up and vaporize the rich people themselves.

Adam Hengels’ original post ignores other solutions and ignores the ultimate cause. The ultimate cause is Capitalism and how it works, by those who own things becoming wealthy by virtue not of what they do but of what they own. Extreme example: Bob Hope, an outstanding well paid comedian. He did not become a billionaire (the fourth richest American when he was alive) due to his talent. It was because he bought real estate in the mid 1900s that went up enormously in value.

I agree with Adam Hengels that rich people are not bad. For example, I am a hard working well paid software engineer and am a good person and my property in Ocean Park is now worth far more than I can afford. I co-own it and cannot even afford to buy out my partner. My house is now worth 1.4 million dollars and it is a tear down! Why is it worth so much? Because a developer would pay that much to come in, destroy it, and replace it by three luxury condos (It is triplex and zoned for up to three units). By they way, I am seriously considering taking up those offers, but have not yet succumbed.

If the argument is that increasing density will enable the creation of more affordable housing, I disagree. Paris has 55,000 people per square mile but can hardly be termed “affordable” (average rent is $50/10 square feet – so $3250 for a 650 square foot apartment). They banned rent control in 1988 and it has been a land lord heaven since then, including many foreigners who buy up real estate and become land lords. Paris is going down the road of reintroducing some rent control to put a cap on the situation. (Reference: http://goo.gl/fgmkQs)

This of course hints at a partial solution, not mentioned by Adam Hengels, who appears to be of the Free Market Fundamentalist persuasion based on his belief in “supply and demand”. That partial solution would be strong rent control restored. Strong rent control means that a rental unit’s rent cannot be increased to Free Market rates when occupants change. The rent limit is on the unit and stays with the unit. I would like to see strong rent control not only on housing but on commercial real estate. My argument is as follows…

First, density (which, by the way, I do not oppose, unlike many of my liberal friends — I just don’t think it has anything to do with affordability), does not solve the problem of high rent, as mentioned above.

Second, strong rent control on housing obviously provides more affordable housing.

Third, strong rent control reduces the value of rental properties, enabling people with less wealth to purchase rental units and become land lords (I am not arguing for continuing the medieval concept of having “lords”, but I am recognizing that we are still stuck with lords for another few hundred years or so and may as well allow people with less wealth to become lords).

Fourth, the ownership of property is the main reason people become land lords. It is not because they are producing anything. They are, in fact, sucking money right out of the economy into their pockets. BIG CAVEAT — it is really only the first land lord who gets the money – after that, the banks collect the inflated mortgage being charged by the new land lord who bought the property at the inflated value determined by the “Free Market”. For large corporations that own multiple buildings, economies of scale make that profitable even though it is still the banks that “earn” most of the rental income. Strong rent control puts a damper on that form of exploitation (to use a Marxist term) and enables normal people to be land lords.

Fifth, this is all the more true for small business owners. I would actually like to see the City buy up property over the next hundred years or so and convert to a concession model (Cf. Perry’s on the beach), enabling small business owners to exist on Main Street without having to pay feudal lords a large cut of their gross income just in order to eek out a living. The Main Street News Stand closed because they could not afford the rent. Joe’s Diner likewise. There are many examples.

Sixth, I need to counter the argument that having strong rent control will result in properties being sold so that developers can convert them to condos, removing rental stock from the city. Yes, that is a problem that has to be addressed. My argument here is that there would need to be some form of limitations on converting rental housing to non-rental housing (ironic, since my ultimate political platform would be to ban rent and convert all rent payers into owners, but that will have to be a subject of a future diatribe!). Note, we already have such limits. Example, I own a triplex. Even though I use it as a private house (we are thinking of starting to rent one or two units), I had the idea of converting it to a condo precisely so that we could subdivide our property so that one of us (my co-property owner) could sell her half. No can do. The City of Santa Monica will not allow us to convert our triplex into condos. As a further irony, the City of Santa Monica *would* allow a developer to scrape the existing multi-unit building and build new luxury condos. So, even though I am arguing against my own self interest, I am actually proposing that the limits on converting multi-unit rental housing be enforced and, in fact, strengthened.

Finally, this myth about the “Free Market” and supply and demand religion… For those Libertarian Fundamentalists out there, let me say this to you. I AM NOT SAYING THE SUPPLY AND DEMAND DOES NOT WORK. Of course it works. That is utterly trivial. What I am saying is that we need to CHANGE THE RULES OF THE GAME. We install strong rent control. You don’t like that? Don’t blame supply and demand or some religious notion of use infringing on your precious liberties. The proposal puts in new rules that you have to play by. Within those rules you are as “free” as you are in the current set of rules, which result in oligarchs owning everything and “earning” money not by virtue of what the they do (work, productivity) but by virtue of what they own. Yes, there is a productive function required to manage and sell and buy and maintain property. but that productive function costs WAY less that what the current rents are in Santa Monica. The rest of it is charity to the rich based on a system of rules that protects the wealthy and enhances their fortunes.

Dennis Allard
Santa Moncia
January 29, 2015

Sounds like the Terrorist Strategy 101 of playing both ends against the middle.

Sure, rent control provides more affordable housing, but does it provide more affordable housing? By which I mean, it obviously makes some housing cheaper. But does it provide any incentive to create more housing? My guess is that no, it doesn’t, and all you end up doing is creating a privileged class of those who have apartments and will never ever move out, and an underclass of people who will never be able to live in Santa Monica. Though I suppose that’s fine if you already live there.

I don’t poopoo supply and demand which is a trivial concept that simply explains how prices change. I do poopoo Libertarian Fundamentalists who religiously believe that the Free Market is equivalent to supply and demand and that having laws and rules that affect prices somehow violates the law of supply and demand. No, having various rules and laws that affect prices affects both demand and supply but does not change the basic fact that prices are determined by the supply and demand curves. I poopoo the Libertarian religion that the right best point in the space of possible economies is to not have any rules or laws that limit the control of resources by the oligarchy. Allowing the so-called Free Market to reign without any government rules or laws to influence economic activity is simply one choice in the set of all possible economic systems. The Libertarian choice maximizes profits for the owners of resources. That is just one possible economic system and one thing to optimize. As the current global economic system is showing, the Free Market tends to transfer wealth from the working population to the upper few per cent of the population. That is what is happening for the past 30 years.

I’ll make more comments about Rent Control proper in another reply below.

First, in Santa Monica (I saw this post originally in a Facebook link within a local Santa Monica Facebook discussion), the residential population has not changed since the mid 1980s. Strong Rent Control was eliminated in 1999 and the current system has vacancy decontrol (when a tenant moves out, the land lord can raise rent to market value). Overall, the city is becoming more gentrified. What is happening is that some old buildings are being removed and replaced by higher cost more luxury dwellings that command higher rents. I do not argue that rent control should prevent building new buildings. The rents should be high enough to cover the cost of constructing and maintaining new buildings and renting at rent-controlled levels. And some permits should be given for luxury units as well.

I both agree and disagree with a one of your points…

Yes, having strong rent control (rent on a unit stays the same even if a tenant moves out) only in Santa Monica without having it in all of Los Angeles tends to make people stay in their units and never move out. But that would NOT be true if we had strong rent control everywhere. Think about it. Normal rent control causes residents to stay put even more, since now, in both Santa Monica and all of Los Angeles, there is rent control (not strong rent control). I would argue that if you have strong rent control everywhere then people would be able to more freely move since they would know that the rent they have to pay will be reasonable since the rent on units is not allowed to go up to Free Market (inflated) values when the previous tenant moves out and the unit goes back on the rental market.

To summarize, yes, “normal” rent control (where the rent of a unit inflates to “Free Market” prices when a tenant moves out) does result in people staying in their units (and that is already true in most of Los Angeles where there is normal rent control). But “Strong” rent control would solve that. It would prevent rent inflation.

An issue becomes how adjust rents so that land lords make a reasonable profit and that there is incentive to improve buildings and create new housing. As long a rents are set such that a reasonable profit can be obtained, there is, in theory, no reason that strong rent control would not work. In fact, the pure Free Market approach is only one point in the space of economies. It is that point that maximizes profit for the owners or land and land lords. I argue that strong rent control introduces a much wider set of economic spaces that result in less transfer of wealth from working people to the land owners.

Dennis Allard
Santa Monica
January 29, 2015

I actually oppose property taxes. Yes, me, socialist Dennis Allard, opposed property taxes. I think progressive income taxes should be the only taxes. No property taxes, no sales taxes. When the U.S. economy was booming in the 1960s the upper tax bracket was close to 70%. In 1942 FDR actually proposed a 100% tax on all income above $350,000 (adjusted to 2014) (http://goo.gl/VwbCiy). Congress compromised and set the maximum income tax rate to 92%. The result was a few decades of massive economic growth as the U.S. became the empire it is today. I not saying that the maximum income tax of 92% was what caused the growth, but I am observing that is certainly did not prevent it.

“Rent Control has thoroughly demonstrated to be one of the most destructive policies ever conceived”

This is silly. I totally agree with the main thrust of the OP. Supply and demand, in relation with overly restrictive zoning, are the main drivers, and rent control is a side issue. I agree, rent control is not particularly helpful, but it is hardly “one of the most destructive policies ever conceived. Dumb zoning might be a contender, though.

It sounds like what you want is for the government to basically take over the housing market, not directly by actually building or owning housing, but indirectly by setting prices. Which is valid, but it also moves the decision of who gets to live in Santa Monica even further into the political realm and away from the market realm. As for the issue of people never moving out of their apartments, it’s not just a matter of what they can afford elsewhere or whatever, it’s also just the fact that Santa Monica is a pretty nice place to live, and under a socialist waiting list/political connections system of allocation, once you give that up, you’ll probably never get it back. Just ask anyone with experience of advanced Eastern European socialism.

Assar Lindbeck: “”next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities”

South Bronx:

Supply and Demand is a real force, but what is a total myth is the general equilibrium Supply and Demand is supposed to cause. No serious marxist economist questions that prices change along the laws of Supply and Demand, but it is market fundamentalists who naively believe in the existence of equilibrium, and it is this belief which puts Supply and Demand into such an outsized importance in the field of economics and in policy planning. It is interesting and useful to understand how pricing can change by Supply and Demand, but in real life the causes of these changes are near infinitely complex (gentrification is certainly a good example of this) and the changes themselves nearly constant, thus precluding anything even approximating an equilibrium. Rather than an equilibrium point of maximum utility, prices tend toward levels which benefit those with the most political power in the economy, a concept which is virtually ignored (poopooed, to use the technical term) in classical economics.

This is a serious contradiction in how the economy functions. Market economies produce political power in the form of influence-buying wealth (it is of utmost importance to remember that property ownership itself requires government and thus wealth is by nature a political condition), distorting the market, while an economy which is politically blind (or undistorted by political forces, the ideal fantasy of market fundamentalists) requires a level of government intervention against wealth-based power which also distorts market principles. But government is run by those with economic power, indeed government is economic power. The market cannot deliver a solution to this problem, because it is fundamentally a political problem, a question of how rather than whether to distort the market (as “leaving the market alone” will lead to its own political distortions). We can’t approach a solution to this dilemma so long as economics as a profession largely ignores or misunderstands the fundamental role of political power in the economy (the sway of neoclassical economists is still very great in the classroom), which is at least as immutable a force as Supply and Demand.

Even if you keep rents at a given level, though, I imagine the landlords will have a very strong incentive to pick the wealthiest tenants, since they’re most able to pay. And if you don’t increase the total amount of housing stock, you still end up with gentrification, just a version that won’t affect you personally since you’re not likely to get evicted, since you look like someone who’d be able to keep paying the controlled rent.

The other problem is that your rent control scheme creates a VERY strong incentive toward condo conversions, since those become comparatively much more profitable. Possibly even to the point of tearing rentals down and rebuilding as condos, depending on how big the price pressure is. And of course there’s a strong disincentive to rent out your condo, since you a) won’t get much profit from it, and b) will have a hard time if you change your mind but your tenants don’t want to move out (and why would they, given the great deal they’d be getting).

That certainly seems to be the way of choice in some parts of SF now, with a Mission merchant’s association trying to block improvement of the streets. Seems pretty insane to complain about neighborhood improvements after years of complaining that the city neglected that same neighborhood, though.

It is, of course, an expression of and fuel for that fundamental imbalance, as I acknowledge. The difference between the state and the open market is not that the market removes those imbalances — it actually exacerbates them. The difference is that in a representative democracy, the poor actually have a chance to organize and vote in a manner which restrains that, as has happened repeatedly in this country’s history, which is where a lot of these zoning regulations actually come from.

Which illustrates a key point — organization isn’t an unalloyed good. Working class neighborhoods which organize to retain coherence often also organize to exclude others, which is why we have a judiciary and anti-discrimination laws. The point remains, though — in the arena of the state, democratic power counts for something. In the arena of the market, one dollar equals one vote, which can be kind of “democratish” if inequality is minimized. However, if inequality gets too strong, the market becomes a tool of tyranny.

So can a municipal government be repressive and tool for reproduction of inequality? Sure — and I don’t disagree with neoliberals on that point. What I disagree with is that the market is any better in that regard, and that “radical liberalization” is going to do anything for inequality or gentrification.

“The Libertarian choice also has huge benefits in that your money is as good as anyone else’s, no matter who you are.”

So it helps everyone, so long as everyone has plenty of money, right?

I mean, yes, the USSR was in fact pretty effective at constructing lots and lots of housing relatively cheaply. Are you suggesting that federal/state/city governments should embark on a similar massive construction program? If so, well, at least you’re trying to solve the problem at hand, using the third alternative, which wasn’t mentioned in the article. I should note that you might have some diificulties, given a very popular location like Santa Monica (or Moscow) where lots of people want to move to, because the government may not be able to keep up with housing construction. The USSR solved this with restrictions on internal migration (via the propiska system), which is almost certainly not an acceptable solution for the US.

“you have many more prospective tenants to choose from”

I imagine there will be one criterion which will stand above the rest: the prospective tenant who is willing to give the largest amount of money in cash, over and above the legally-mandated rent, will be the one to get the apartment.

I’d say what I’m really stuck on is building more housing. As long as we do that, whether by the government allowing more development, or having the government build it directly, everything else is, relatively speaking, minor details. Anything that makes building housing more expensive for the private sector needs to be offset by some amount of government money to replace the housing that is not built as a result. Whatever benefits Inclusionary Zoning may have, encouraging the production of more housing is not one of them.

“That is literally exactly what we (the Market Urbanists) are saying
here. And we’re saying that the market that is MOST distorted by wealth
is generally the one where that wealth is concentrated the most: the one
with the richest people who get SFR zones passed to protect their
mansions (e.g. Hancock Park, for an LA example).”

Yes but the crucial point you’re missing is that wealth concentration is a product of a functioning, undistorted market, where things are working as they’re “supposed” to. Liberalizing the market would first of benefit greatly those who already have wealth, and secondly would lead to future deliberalization spearheaded by those who won in the liberalized market. This is inevitable and is pretty solid proof, on its own, that a true “market” economy is neither desirable nor possible. But nearly all economics theory pretends this dynamic doesn’t exist and instead that something called an “equilibrium” will make everyone as well off as possible if Supply and Demand are just allowed to do their thing.

It’s really pointless to even talk about policies in housing without addressing a bigger underlying flaw in economics thinking that pervades the economy as a whole, which after all is what determines where people want and can afford to live in the first place.

Yes, that’s exactly what’s happening here, deliberalization spearheaded by those who won, which we can either accept or fight back against. I recommend fighting back, as a better alternative that simply accepting it. What do you propose to do, to address the problem of a) constructing sufficient housing for those who want it where they want to live, and b) allocating that housing among those who want it?

And on a more philosophical note, I think you’re assuming more faith in “the market” on my part than I really have. I’m not saying that The Free Market is the ultimate form of social organization, only that a free(er) market in housing seems like a good way to allocate housing. I’m definitely not saying that free markets are inherently self-maintaining, and indeed democracy and government regulation can both serve as a useful checks to ensure that a market continues to fulfill its social purpose.

EC, I’ve written thousands of words on this site thoroughly demonstrating the dangers of rent control. I linked to many of my writing right here in this very thread of comments.

Yes, it’s been thoroughly demonstrated:
*There is no issue in all of economic debate with as much consensus as rent control.*

For the South Bronx, rent control was absolutely devastating. To brush it off as “not ideal” is pretty hard to swallow.

In this light, it hard for me not to take offense to accusations of sidestepping the topic or unfair rhetoric .

Santa Monica had strong rent control until 1999 when the local city rent control laws were over ruled by California legislation (so much for local democracy). The experience in Santa Monica was that there were not long lines but there was a black market of “fees” paid under the table to land lords. Overall, however, the result was a less gentrified population than has since developed.

That does not invalidate your point. The big problem with strong rent control is not strong rent control in one city, it is the lack of rent control in other cities near by. If an entire country to were to make strong control the law, then that argument evaporates (and one has to deal with the other arguments against rent control, as I have attempted to do elsewhere in this thread).

Except that we currently have a housing surplus — it’s just in the wrong places. We have houses in every state in the country that are sitting empty for years, and more that are just foundations, or just unfinished shells, because the speculative builders building them went bankrupt. Yes, there are some cities which are excluding density by zoning, but in each of those metro areas, I guarantee you there are areas with 30% vacancy rates.

The bigger problem we have is that we have a shortage of housing that is in walkable, transit-friendly, mixed use neighborhoods with good public schools. How do you get more of those? You have walkability plans, spend money on public transit, put restrictive covenants on the forms retail can take, and improve your public school system.

I definitely agree with your take on the problem. But the solution sounds an awful lot like… gentrification (using the term somewhat loosely), because what you need is not just good schools and walkability, but also access to the economic opportunities in the urban core, and in a lot of places, all the accessible or even potentially accessible land is already built on. Even if you made Victorville a walkable transit-oriented place, it would still be Victorville and hours away from all the good jobs. Wouldn’t it be easier (physically and economically) just to let more people live in places that are already walkable and have good transit and good schools?

The shortage of housing is caused by too many market and government related problems to say there is any kind of workable solution that is simply a “housing” solution. What causes shortages and surpluses of houses? In other words, why do people want to live in certain places, and what allows or forbids them from doing so? Jobs. And where are the jobs? Wherever new companies locate, which usually has a lot to do with government policies, such as sales and corporate taxes, regulations, etc. Simply building more houses, wherever they are and under whatever zone, will either lead to price increases or empty housing if it’s not part of a much more significant reformation of the entire economy, one that is decidedly not market-oriented. Something like a universal basic income (in other words, decoupling livelihood from working) would do a lot more to solve housing issues than housing itself could ever do. Liquidating the rich (liquidating their assets, that is) wouldn’t hurt either.

Progressive income tax is a good thing, but a land value tax I s better because it is much harder to evade (income can go unreported, but it is easier to check who owns a given site) or avoid (you can’t use sneaky accounting to attribute your land rent income to a lower-tax jurisdiction).

Also, you can’t stash land in a tax haven or a numbered Swiss bank account.

“rich people don’t just vaporize by prohibiting the creation of housing for them.” Great line. And neither do poor people, or anyone else for that matter.

Sorry but without rent control most of us would be living on the street. Let’s get real. Stop theorizing and look at the wages.

Removing housing from the marketplace, and thus from market forces, can easily be done, but it does require wiping out a lot of the things Americans like about owning housing (e.g., it doesn’t store value, it doesn’t offer much autonomy). Mass public housing, as exists in Singapore or Vienna, would be one way. Limited-equity cooperatives are another.

Well, it more helps everyone who is productive. So if you are productive with your piles of money, you will reap a lot in return. If you blow your piles of money on conspicuous consumption (Arrested Development comes to mind), free market libertarian world leaves you just as destitute as the next unproductive fellow.

So, I’m reading you as making two assertions here. 1) Only unproductive people don’t have money. 2) Because of that, it’s okay that the wealth inequality warps the market and creates substantial power imbalances, because it’s only leeches like single parents, senior citizens, the disabled, and the structurally unemployed who are pushed out, right?

I think I was more trying to make the point that just because you start off with a lot of money for whatever reason (inheritance, invention/patent, etc) doesn’t automatically mean that “free market” markets become your plaything. You still have to be productive with your built-up capital in order to reap even more rewards. Warren Buffett is super-rich, but he only makes more money by investing/lending his money to businesses that go spend it on labor/resources in order to create something of more value, of which Buffett gets a cut in the profit.
The problem we have today is that via crony capitalism, many people with lots of money rig the game so they don’t actually have to be productive in order to continue reaping rewards because they’ve eliminated the competition through zoning, business regulations, licensing laws, targeted subsidies, etc. For example, I used to work for a big bank (ironically Buffett is well-invested in this bank’s stock), and that big bank partly makes a profit because it is large enough to absorb the costs of all the mortgage restrictions and laws. Small mortgage companies find it difficult to comply with things like Dodd-Frank and still turn a profit, so they go out of business.

In response to your other points 1) only unproductive people shouldn’t end up money in a “pure” free market. Now nowhere on earth is there a pure free market, but the West generally comes closer to this end of the spectrum than the rest of the world, which is why you should see less of the mob boss/railroad baron with money in the West. Doesn’t mean the rich still don’t rent seek, but it means the problem isn’t with them being rich, but with them using that money to rent seek. So no it is not okay that wealth inequality warps the market via force/favors bought from those in government/power.

As for those who struggle to be productive for one reason or another (let’s say the disabled), that’s what compassion and charity are for. However, I find it hard to mentally grasp an argument for forcing people to be charitable. I think a healthy society will have plenty of charity in order to enable those people to live meaningful, healthy lives, but forcing that not only creates problems in discriminating between the poor who will flourish upon receiving charity vs those who won’t, but also breaks the social feedback loop whereby those who receive charity feel and are accountable for what they do with it.

Jon B states the Libertarian Fundamentalist mantra: “efficiency is based on what people of their own free will are willing to pay”.

Like when slaves, of their own free will, could decide to run away and ultimately get shot or choose, of their own free will, to stay on the plantation.

Or when todays workers get to choose, of their own free will, which Capitalist they work for so that the Capitalist, who owns their work product can sell it and “earn” money based on what the worker produced. The Capitalist is making money mostly by virtue of what they own, not what they actually do. It’s called leverage. As the company grows the vast majority of the wealth of the company goes to the very small number of Capitalists who own it. They don’t have to work harder or produce more yet they obtain more and more wealth *because* they own the company. Very efficient. For the Capitalist.

All those workers choosing, “by their own free will” to work for the Capitalist. Very efficient indeed, for those who own.

Can anyone do this (become a Capitalist and enjoy the benefits of masses of worker choosing by their own free will to do work to enrichen the Capitalist)? Yes, anyone can do this, it is a free country. But can *everyone* do this? The answer is no! If everyone did it, there would be no workers for the wealty to use to enrichen themselves since everyone was doing it. That would be socialism, where everyone earns money based on what they do and not on what they own, since it would no longer be possible to leverage the work of others in order to enrichen oneself.

Under such a system, you would not need “trickle down” economics (which is really “flood massively up” economics as the past thirty years have shown.

Instead, every worker would own a significant amount of the company they work for. That is NOT what our current economy does. Our current Libertarian-based economy results in a small number of people owning most of the resources and having most of the wealth.

In Bolivia, they are changing this somewhat. They nationalized the oil and power industries, they make it illegal for one person to own vast amounts of land, they are, literally,, trying to spread the wealth. The result has been an important reductiion in poverty, better education,, and overall better lives for more people.

Back to the topic of strong rent control… Having strong rent control on all rental units in a society would not limit the freedom of anyone. It simple changes the rules of the game. A propective land lord has the freedom “of their own free will” to buy any rental property, knowing that the rules of the game are now different. What they are buyinjg is not just “a property” but, rather, “a property with the following law-based limit on rent increases”. I argue this would increase freedom and efficiency since it would prevent property inflation that makes it harder to afford to buy rental property. There is the issue of how to impose rent control that does not prevent construction of new renal units. This can be achieved by zoning some areas to only be allowed to be used for rental properties and by allowing the intial rents after the property is built to be set at market rates.

You also seem to think that there are all these market inefficiencies out there (price gouging, underpaying for labor, etc) and so we need to use regulatory force to remove these inefficiencies.

No we don’t. If there’s really an inefficiency out there, and say employees are getting underpaid by $5 an hour, then guess what. Undercut their business. Do the exact same thing, only pay your employees $1 an hour more for their labor, and take their profits and make them yours. Your employees will still be “underpaid” by $4 an hour- but that’s your profit, at least that’s your profit until somebody else realizes there is still wiggle room to take your employees by offering them more pay, while still collecting a profit. And so on and so forth until you can’t offer a higher wage and still make a profit.

Because if you could take the billions going to the Waltons and transfer it to your own pockets merely by doing the same thing, using the same business model, but paying your workers slightly better, and cutting prices ever so slightly, wouldn’t you?

In response to your first two paragraphs, it is fundamental to human-constructed systems of power, including those that valorize private property rights and other “first principles,” that they are constructed out of extant power dynamics. You can lament that the powerful twiddle the rules of the game to their own ends, in the same way that you can lament your own mortality, but it’s not going to do much good. The modernist, rationalized state is an attempt to minimize the incursions of that power into the affairs of the state, but given that its power that is continuing to construct the state, that’s a contested process in and of itself. I don’t think you’d disagree with any of this. Where I think the “marketists” go wrong is that they think “the market” is somehow excluded from these dynamics, so that it exists in some atomized, free state, when an examination of how economic relations actually develop and are executed shows that they are anything but atomized or purely rational at base. Indeed, the same forces that are busy fighting over how to construct the state are simultaneously fighting over how to construct the market, and attempting to rig the rules for their own gain. Again, one can lament this, but there is no “market” outside of the human construction of it.

One advantage that the modern state has over the market is that it can be disciplined by democratic means. This isn’t always a great thing by any means, but it does give agency to those not in possession of massive wealth or power resources to impact it. And, we have lots of historical practice in state-craft which has led us here, to the point where a bunch of highly powerful and wealthy forces are intent on market-centric deregulation and are tearing at the state in a contested power play. Pretending that this is a rationalization of the state is, well, a rationalization of another sort.

On the last paragraph, I’m out of time, so the short version of this is that it relies on a lot of really problematic canards, such as a simplistic behavioral relationship between charity and motivation to work, an erasure of the role of society and the state in provision of housing for the “non-productive,” an implicit valorization of private property rights at the expense of other forms of state action as “non-forceful,” and so on. There’s a bit too much there for me to unpack at the moment, but I’ll try to come back to it.

In regards to your first two paragraphs, of course the same sources of power are trying to influence the market (rent-seek) just as they try to influence the government. However, as you point out, the way to counter-act this is to democratize the process. This means allowing people to cast votes via their money or labor as to what they actually want, not what the powerful wish to give them. If the non-powerful don’t like what the powerful try to hoist upon them, they can take their money and labor elsewhere or create their own networks. Simply put, it gives those without power choices.

” an implicit valorization of private property rights at the expense of other forms of state action as “non-forceful”

Well of course the state uses force to uphold property rights. Otherwise people would try to attain the ability to force another person to use their property, person, or labor for their own uses. Surely you don’t think the government should allow slavery whether it be through forced labor or forced seizure of the fruits or another’s labor. Property comes from the idea that I am my own person, and I get to choose what I do with my person, and I get to bear the consequences and rewards of my choices. So others don’t get to benefit the rewards of my positive or productive choices. I do.

Re-reading your comments. Came across this one. Perhaps you could clarify for me and tell me how power imbalances become worse at the market level, or maybe provide an example of how this plays out. Because to my thinking, if someone with power offers a price, either as a buyer or a seller, I have the ability to walk away and find another buyer or a seller. That gives me more power than when power imbalances play out at the state level, and if I break an zoning ordinance I get tossed in jail or pay a fine and have no way of walking away- so to speak- from that ordinance unless I choose to relocate to a different jurisdiction.

Making money the only unit of power is not democratizing. Democracy is one person, one vote, not one dollar, one vote.

I am not anti-private property, so calm down. I am anti-assuming that private property is “natural” and a “first principle” then turning around and asserting that taxation and provision of a social safety net is somehow market warping and “unnatural” or a “violation of first principles.”

To try one more time to keep this from spinning off in me trying to claw my way out of Libertarian fantasyland, let me get back to the core concept of gentrification and the way in which power can be exerted and the market warped through nothing other than “market” forces.

A friend of mine is a former vice president of a major national retail chain which I won’t name to keep him from getting in trouble, but which you all know. Call it Company A. They are in a specific large and growing niche in a major retail market, and are the #1 dominant player in the country. About 15 years ago, a regional chain started to grow in the same niche, buoyed and financed by their phenomenally successful home store. Call that Company B. As Company B established a growing retail footprint and began to expand into new markets, including some unreached as of yet by Company A, the executive team (of which my friend was apart) tried to figure out how to respond. The strategy, in the end, was as the CEO put it, to “bomb the bomb factories.” Company A opened up a gigantic store very close to Company B’s home store, and proceeded to underwrite massive losses in that store for years. Yes, it cost a lot of money, but in the end it undercut the home store of Company B’s profits so much that it completely eliminated Company B’s capacity for new store development. Company A proceeded to do the same thing in every market where Company B had a store that was highly profitable. Years later, with Company B facing losses and looking at closing stores, Company A bought out Company B for a substantial discount over its former market capitalization, but for more than it was probably worth, with the sole justification that it had, at that point, effectively killed off the last challenger to Company A’s status as the only national chain in that market niche, and that’s the way the market stands today.

No state, no zoning, no policing, no monetary policy, no taxation. Just sheer exclusion of a smaller competitor from the market.

This isn’t some fantasy horror story, this is the way actual economic activity works on a daily basis. The notion that you can get back to Hayek’s pristine ideal of everyone efficiently expressing their subjective values in the market is only maintainable if you ignore the way economic relations actually work and the power imbalance and market-based coercion inherent in them. Non-coercive markets as unregulated entities only exist in axiomatic, anti-empirical models.

Laws are only ever written by men (and women) who have obtained power. That’s how they become laws instead of ideals. We can conceive of good ways and bad ways to write laws, but laws fundamentally emerge from power relations, and wealth is a very potent form of power. Allowing any party to become too wealthy caries exactly the same risks as allowing any party to become too powerful, because it is, roughly, synonymous.

You’re going to tell me the 2001 Recourse Rule had nothing to do with banks over-valuing securitized mortgages based on a government-provided risk weight?
You’re going to tell me that Freddy and Fannie’s credit policies, regardless of whether they were risky or not, didn’t create non-free market competition which lead to other companies having to compete with government institutions.
You’re going to tell me the continual increase in FDIC insurance coverage that made almost all major bank liabilities guaranteed by the government doesn’t change the risk/reward evaluation for banks?
You’re going to tell me that banks, lending for profit, required less downpayments because they actually re-ran risk/reward perimeters and found out they had miscalculated, and that the Housing and Community Development Act of 1992 requires certain levels of borrowers with incomes less than median income had nothing to do with it? Ditto for the Community Reinvestment Act.

Yes, banks like Citigroup engaged in short-sighted greedy behavior. They were given incentive to do this because it wasn’t just their own money they were risking, they had government safety nets in place which reduced risks and changed incentives, which results in stupid decisions.

But knowledge and connections are valuable. Not all value is “tangible”. The idea to burn oil created value.

Which is why respectability and education (of any sort) possess value in a marketplace. They facilitate economic exchanges and therefore provide value. And last time I checked, everyone is free to gather as much knowledge and respectability as they can (yes, formal education requires payment in order to access the knowledge, but there are plenty of means of acquiring knowledge that aren’t as costly).

Side note:
Thank you for your respectfulness throughout this debate. Most of my debates on the Internet don’t have the same level of courtesy.

I think both of us are trying to learn about how the world really works and what we humans can do to create human flourishing. Both of us have ideas about how that can be done. So we’re arguing them. We’re seeing which ideas are more reasonable. I hope you understand that I also bear you no ill will.

Why would anyone throw good money after bad? The capital required to make a play in the space and to fight back against the almost certainty of Company A’s predatory pricing is in the tens of billions of dollars, and there are other niches worth going after. The “harm” here is an illustration that Company A continues to be synonymous in this country in its market niche despite being non-stellar in many areas of its business, competition is stifled for the consumer, and at a theoretical level, it simply demonstrates that the market winner is frequently not there on abstract merit, but on an economic power play that produces no additional value to anyone but the shareholders of Company A.

There are competitors emerging to Company A, but they have been primarily in the form of local cooperatives whose customers have placed a value on above and beyond price and product. Another earlier analogous situation would be Microsoft’s hyperaggressive monopolistic practices which forced everyone out of the market until open source software, which was impervious to them, undercut them (and undergirded much of Apple’s platform transforming market interventions).

Again, I’m not trying to tell a heroes and villains story here, but merely to point out that the market can be (and almost always is) warped to the favor of major market players, in a way which increases the wealth and power of the shareholders of those players without providing any additional value to society as a whole. (More on this in a parallel comment.)

I think we’ve gotten to the core disagreements here. I object (strenuously) to the following notions:

1) That wealth is only obtained by legitimate value production.

2) That equal production of socially beneficial goods in the economy yields equal wealth.

3) That acquired wealth, however obtained, should *normatively* yield unfettered power equivalent to that wealth.

4) That provision of fundamental human needs should be contingent on acquired wealth.

5) That productive activity in the economy is motivated only by wealth acquisition.

6) That marginal decreases in the amount of wealth acquired, particularly at the top end, are enough disincentive to substantially decrease overall economic activity. (Corollary: that the net productive yield from increased incentive to top wealth earners outweighs the corresponding net productive to minimum wage earners, roughly speaking.)

I would further assert that the above concepts, while not only based on a grossly simplistic model of economic activity, have each also been demonstrated to be empirically incorrect. One can say, “well, they’re not always true, but they’re generally true.” I would say that they are true so seldomly as to be considered generally false.

Got any links?

Doesn’t matter whether or not sub-prime was touched by Fannie and Freddy. The government put laws on the books which encouraged sub-prime lending without proper financial guidelines to allocate risk. (see: 2001 Recourse Rule and Housing and Community Development Act of 1992). Furthermore, the addition of Fanny and Freddy to the market encouraged the other lenders to get into the sub-prime game in order to keep up with the government-subsidized competition. Nothing you said counters anything I said.

How is FDIC non-sequitur if it means that banks knew their sub-prime loans were fully insured and they couldn’t take a loss on them. That doesn’t change the risk perimeters for those lending the money?

Jon B (Stuck in IA) long reply (the one just above that begins “We’re going to compare consumers to slavery”) contains a couple of good points that I will, briefly reply to.

However, first I will summarize, also briefly, the essence of what’s wrong with his position.

The following video is an entertaining rebuttal to Jon B’s position. It is a TED talk by very wealthy entrepeneur Nick Hanauer:

The essential point that Libertarian Fundamentalists don’t see is that the Free Market does not optimize quality of what is produced nor lead to equitable income curves. I worked for a lab where many of the inventors of the Internet did their great work (USC/Information Sciences Institute). They did not do that work to become wealthy (some did go on to wealth but that is not the point). They did that work for good salaries and for the love of good science. The DNS system, TCP/IP, and everything that is making this blog conversation possible was NOT done for profit. Libertarians seem to (religiously in my view) believe that maximizing profit results in maximizing the quality of what is produced. That is patently ridiculous. Bill Gates produced an operating system that was know at the time to be mediocre. It contained all kinds of faults that resulted in entire industries being created to fix those faults (memory managers, networking systems, etc.) As one bright fellow software engineer friend of mine has put it, Microsoft succeeded due to “Survival of the Adequate”. Yes, Gates is very high IQ and a brilliant businessman,but the reason DOS became imposed on society was because he “won” the race more of first to market and consolidation of the market. And his vast wealth is based on that ownership (of one third of Microsoft stock).

Could Microsoft (or, hopefully, a company producing an even better OS) have succeeded without the “incentive” to become a billionaire? Of course. The invention of TCP/IP and HTTP proves that very excellent inventions are done all the time by government funded work.

So, at the very least, please put a lid on this adulation of the Free Market as a panacea to optimzing productivity or quality.

The one point @jonbstuckinia:disqus made that needs to be taken seriously is the point about stock ownership. The fundamental problem for socialists is how to solve the issue of income for people who have retired from the work force.

My problem is not with the ownership of stock, per se, it is with the non-linear nature of income and wealth. Jon B wants to not have controls on rents or prices or, god forbid, wealth, and I assume Jon B opposes a minimum wage and progressive income and wealth taxation. I don’t buy it. The non-linearity of income is based not on productivity but on the power of ownership (see above). So, I believe in a non-linear solution but one that involves very progressive taxation of income to counter the rabid non-linearity of income caused by the Free Market Jungle.

Ultimately, Social Security, which is funded by workers but then invested in Treasury bonds, is paid from the tax base (just like Chinese of Jon B’s bonds (assuming he has bought any) are paid for from the tax base). And that’s OK. Paul Krugman has ably showed how Social Security is both stable and could be enhanced. Ultimately, I believe that massive enhancement of social security is part of the solution.

I would also favor a very progressive wealth tax. I favor having zero property tax on primary residences but strong rent control (or, better, a constitutional amendment banning rent for ones primary residence (essentially banning land lords can converting all renters into landed gentry)). But for other land used to suck money out of the economy (by renting) I would favor very high income taxes, resulting in lowering the cost of land enabling more businesses to buy the land and not have to rent it.

Dennis Allard
Santa Monica
February 7, 2015

“The essential point that Libertarian Fundamentalists don’t see is that the Free Market does not optimize quality of what is produced nor lead to equitable income curves. ”

Optimize quality of what is produced? Why aren’t people demanding this optimal quality? Because they aren’t willing to pay for it, that’s why. Which means they value the savings due to reduced quality more than increased quality. And let’s even suppose this isn’t in their own self-interest. Let’s suppose that by buying higher-qualities good, the average consumer actually saves in the long-term. Good. Go teach people how to truly act in their self-interest. The solution isn’t to shackle self-interest, it’s to help people understand what is actually in their self-interest. Even if you do know what quality is optimal better than the rest of us, the solution isn’t to force us into accepting your idea of what optimal quality is, it is to persuade us. Furthermore, our acting against our self-interest doesn’t hurt you. You’re perfectly free to go buy whatever high-quality goods you want.

Yes, Bill Gates would work even if he didn’t make millions to do so. I’ve made this point elsewhere, but I’m glad he would. I’m glad a lot of Americans would work even if their survival didn’t depend upon it, but sadly, not everyone is of that good a nature. There are those, and they are a significant amount of people in any society, who will not work unless they have to in order to accumulate enough wealth to survive. That’s why when you try to guarantee people any standard of living beyond the mere basics, they are happy to do no work and have 1K of disposable income, rather then do work and have 20K of disposable income. And I re-iterate, yes some people would work even if it gave them no further wealth. But that’s not everyone, and to imply that the world is free from freeloaders is just naive.

By the way, Bill Gates providing the money so that fixed costs can be met in order to achieve high scalability and re-producibility provides value. That’s why he gets returns on his stock. Because his investment actually does provide something of value to society.

“My problem is not with the ownership of stock, per se, it is with the non-linear nature of income and wealth”
Well, get rid of the free-rider problem in economics, and we’ll talk. Until you can show me that enough people won’t try to get more out then they put in that it will cripple the entire economic and social system, we’re going to have to have non-linear income in order to give people incentive to work. Based on the history of China, and Russia, and Cuba, I’m going to posit that we’ve not yet found a way to get rid of the free-rider problem.

Progressive taxation just means (in a perfect world) some (not all) people who could be earning more wages by providing more services and goods for people won’t, because they receive less in return for what they produce. Yes, for those who make money that they haven’t actually earned this isn’t the case- but free market libertarians aren’t for people making money they don’t actually earn by producing something of value, so promoting progressive taxation as a way to hinder rent-seeking doesn’t really counter free market thought. It’s more of a strawman. Bill Gates gives people something they want. Robert Downey gives people something they want. Anyone else is free to come along and give people what they want for cheaper, and run those two out of business. In short, I’ve yet to see an example of a rich person making lots of money without providing people something of value that a free market libertarian would look at and go “Yeah, I’m defending that”. For example, Carlos Slim. Not really operating in a free market with competition. Not really a fan of his wealth.

Social Security would be stable, were it properly funded and our politicians hadn’t used it as a shore-up shortfalls pot of money earlier on in its existence. My problem with Social Security is its lack of return. Other libertarians have proposed mandatory IRAs or something of the like- noting that this would be a compromise and an exception to their principles.

Rent control: If you put the rent control price at a price at which it is no longer profitable to rent out that land, who is going to rent land? I’m guessing your real objection here is that landlords “price gouge”, to which the answer is competition, not price controls. If Bob wants to charge me 1K a month for a studio apt, let him. George realizes that he can charge 950, still make a profit, and steal Bob’s business. Then Bob has to lower his prices, so on and so forth, until they are charging as little as they can and still make a profit.

You both cherry pick and miss my points.

“Why aren’t people demanding this optimal quality?” They are. You miss my point. Optimal (or just better) quality does NOT cost more than what Bill Gates produced (MS-DOS). The reason MS-DOS won was not because it was cheaper, it was because it was first to market and Gates made a deal with IBM. It has to do with power and control.

And the main point, which you also did not address, was that the Free Market was not even necessary to produce excellent technology. The Internet was a government funded product. The U.S. government could fund gigabit fiber to every household in the U.S., just as it funded the Interstate Highway system back in the 1960s and the result would be excellent. There is no need for someone to get rich doing that, they just have to do their job and get paid well.

Rent control: No my objection is not that land lords “price gouge”. I don’t think they do. They simply charge market rate and they (well, more often, the last bank to have loaned money to the last land lord who bought the building at the Free Market inflated price) make money by virtue of what they own and not by virtue of a production function. Essentially, they are coercing the entire renter class into paying them for owning property. That is stupid. And I don’t “put the rent control price at a price at which it is no longer profitable to rent out”. The rent control price should be intially at market price then held to adjust for inflation. In that way, the price will remain profitable but the price will not inflate. For this to work in a way that prevents a black market it needs to be done everywhere at least within the greater municipal area of a typical city.

You did not comment on my proposal that we make it a right for everyone to own land and not be a renter. You don’t seem to understand that my proposals to limit rent (and, in fact abolish it) will have the effect of reducing land lords making money without being productive (owning land) and, hence, increase productivity in society since renters will have more money to spend rather than transferring their wealth to their land “lord” (I really look forward to a day when we no longer have lords in society who make money riding on the back of people who are actually working).

You also never commented on the TED talk which presents solid stats about distribution of wealth and income due to lower taxes and how that has not helped the economy.

Cuba a bad example for you to pick as was China. China went from feudalism in 1949 to an advanced economy in less than one life time (66 years and counting). I am not defending lack of civil rights in China, by the way. Cuba has a per capita GDP much greater than comparable Capitalist countries such as Guatemala, Honduras, and El Salvador. Even Colombia’s per captia GDP is not much greater than Cuba’s. If the U.S. economic boycott of Cuba ends it is going to be a good thing that we can finally travel there and do business there and not have to be subject to U.S. anti-Cuba propoganda of the past 50 years.

You cherry pick – my statement was:

… the Free Market does not optimize quality of what is produced nor lead to equitable income curves.

It is the inequitable income part that is the problem.

No one can know enough to know what is optimal, so let’s just talk about relative quality. I argue that the goal of producing better products is not achieved by the Free Market since the goal of the free market is not to produce better products. The goal of the Free Market is to maximize profit. Libertarian religion conflates maximizing profit to producing better products.

The “free ride” argument is a red herring. Germany, Denmark, and other advanced democratic socialist economies have strong rent control and much lower child poverty than the U.S. yet they are net exporting advanced manufacturing economies with very high living standards. They are example that give the lie to LIbertarian dogma.

References:
http://goo.gl/WVmZgc
http://goo.gl/tWZ4Hj

I have enjoyed seeing MTBinDurham’s attempts to explain the logic of power to the LIbertarian Fundamentallists. It’s like trying to tell a Jehovah’s Witness that God does not exist.

MTBinDurham states:

“I am not anti-private property, so calm down.”

Let me try to add a point here.

I, Dennis Allard, claim to be a socialist (as hard as that is to be in the United States). Does that mean I am opposed to private property. No, au contraire. In fact I am for MORE people owning private property. I think that everyone should have the right to own the land they use for their home. Socialists believe in more people owning things, not fewer people owning most things. The issue is what one DOES with private property. If you own it so that you can leverage it and take rent out of the economy by virtue of you just owning the land, then don’t tell me your are being productive. You are taking money away from someone merely by virtue of your power of ownership.

This is where climbing down out of abstract theory and getting back to actual reality is really helpful. We have some pretty good solutions at hand already, some of which (like Glass-Steagall) used to be in place but were repealed in the name of deregulation. We could tell the Wall Street lobbyists to stuff it and actually regulate derivatives properly, which we have consistently failed to do because of their screams of agony. We could put a very small transaction tax on all trades to slow down the hyperliquidity in the market and save us from the catastrophic failures that emerge from approaching chaotic conditions. We could also simply remember not to put Objectivists in charge of the fed, where they will assume that markets will self-regulate and refuse to take action on housing inflation.

There’s one underlying theme to all of these, though — you have to actually believe that financial markets need regulating. If you don’t, then we’re at sea with no solutions in sight. If you give up that absolutist position, though, and accept that imperfect regulation is better than no regulation, then suddenly there’s some very real solutions at hand.

So, lumping 1-3. Please look at the post to which my previous responds (and others of yours), where you oppose taking the wealth of those who are “productive” and giving it to those who do not produce “value” for society. This implicitly either assumes 1 and 2 are descriptively true, or assumes that the best way to get to a world where they are true is simply to act as if they are true. You’ve admitted that they are not true now, and while I agree they should be true (so did Marx, for that matter), the question is how to get there, which ties into #3. I don’t think it’s actually possible to construct a society where #1 and #2 are true, because of the implicit complexity in human sociopoltiical dynamics.

As an alternative, we can stop treating value as something that is produced atomically by individuals and instead look at it as something which is created through a socioeconomic process. We can then notice that in any political economy the value tends to accrue unequally to certain members, and assert that some of that some percentage (but not all!) of that value should be provisioned towards the basic human needs of all members of a society. Admittedly, that’s hard, and we don’t have any one perfect solution, and we’ve learned that markets are an important part of that solution, but getting into that logic and out of the Randian obsession with the solitary and atomic individual can keep us out of some of these logical traps.

Regarding #5, #6, and your following comments, I don’t assume that only a small percentage are dishonorable, rather I assume that the entire population is mostly dishonorable, poor and rich alike. I think if you reversed their positions (and behavioral studies on wealth and empathy agree), the poor would fairly quickly start to try to ring-fence their assets and behave in monopolist, predatory, and rent-seeking ways. I certainly agree that we need modes of work to incentivize behavior, but I disagree that the market is the one and only tool available for that. For instance, behaviorally, we know almost without a doubt that those who are living on the margins and are struggling with homelessness are operating, out of coersion and necessity, in highly stressed, short-term thinking. If you provide stable housing for people, people are far more likely to start engaging in long-term beneficial behaviors, such as going to job training, opening savings accounts, etc. (Note: not all do, but more do than when they are in dire situations.) The logic of the pure market doesn’t explain this behavior, but understanding people as more complex than simple rational market actors clarifies it, and these non-linearities are everywhere in actual human behavior. Hypersimplifying economic behavior leads to bad economics.

One comment on your #6 response — the CEO to worker pay ratio is now to the point that at many American companies the CEO makes in three hours what an entry-level worker makes in an entire year. Is anyone really willing to make the argument that in EVERY given three hour segment of the year the CEO adds more value to the country or society as a whole than one worker does in a year? Note that I say value to society — I firmly believe that CEOs do, in fact, capture that much more value *for their shareholders, particularly the largest and most preferred*, but that is a different thing than society as a whole. Said another way, in the two states I lived in last year, North Carolina and Virginia, ALL real wage growth in both states went to the top 1% of earners. (Obviously wages increased for some earners in other categories, but others in their categories saw wage decreases canceling it out.) Are you prepared to make the argument that the only people in these two states who increased their productivity were the top 1%?

Another “value” added by landlords is it allows people to have shelter without going into debt (for the vast majority of us who don’t have 100K lying around). This increases mobility. For the person who intends to settle down, renting makes little sense, but for the person who needs to keep options open it allows them the mobility they value rather highly.

I heartily concur with telling lobbyists to stuff it. That’s rent-seeking at its finest. Ugh.

However, I still remain skeptical about regulation. Take Glass-Steagal for instance. It caused major problems in unintended consequences.
http://networkideas.org/networkideas/pdfs/jan_kregel.pdf

There’s basically two premises I have difficulty with. One is that central planners, or whatever sort, will come up with an idea that is in “society’s best interest” that masses of population wouldn’t come up with acting on self-interest.

The second is who is responsible for the consequences. If someone makes bad decisions on the free market and therefore suffers loss, so be it. They are responsible for their bad decisions. If someone regulates people into having to make bad decisions, then people are forced to take loss on something they never decided or wanted to do. It spreads the responsibility for the loss onto people who never made the bad decision.

“There’s basically two premises I have difficulty with. One is that central planners, or whatever sort, will come up with an idea that is in “society’s best interest” that masses of population wouldn’t come up with acting on self-interest.”

You just described the tragedy of the commons, aka the reason why certain economic arrangements are only possible in partially collectivized enterprises.

“The second is who is responsible for the consequences. If someone makes bad decisions on the free market and therefore suffers loss, so be it. They are responsible for their bad decisions. If someone regulates people into having to make bad decisions, then people are forced to take loss on something they never decided or wanted to do. It spreads the responsibility for the loss onto people who never made the bad decision.”

Except that often times people make bad decisions with good intentions. Or make bad decisions because of bad information. The notion of social humanity is basically that of, even if you screw up, you only fall so far. Sure, you fall, but you don’t starve or freeze to death. Yes, it puts the responsiblity for that on all of us, in the same way that we’re all responsible for W’s wars, for Goldman-Sachs greed, and ultimately for your hospital’s medical errors (if nothing else in the form of price premiums). We simply do not live atomized lives — almost no humans ever do. So what you described isn’t “moral hazard,” it’s core to the human experience. And there are many, many ways beyond the market and Randian notions of personal responsibility to encourage honorable behavior.

Gah, I thought I’d early-posted a comment I wanted to edit but Disqus isn’t letting me see it. I think it’s still here, but I can’t find it.

I also wanted to comment on “central planners.” These are, of course, those paving the road to hell (or at least serfdom) with good intentions in Hayek’s framework. Hayek was responding to a particular kind of rationalized, bureaucratic planning state, one which has fallen far out of fashion.

Some on the left are starting to take that seriously, and actually look for non-neoliberal alternatives to the bureaucratic state. Again, cooperatives work well, because they allow for collective action and socially stated enterprise, but are voluntary and smaller scale than some of the massive dreams of the collectivists of the early 20th century. John Restakis and J. K. Gibson-Graham have covered a lot of this ground.

“Except that often times people make bad decisions with good intentions. Or make bad decisions because of bad information. The notion of social humanity is basically that of, even if you screw up, you only fall so far. Sure, you fall, but you don’t starve or freeze to death.”

Most libertarians/free market types are pretty amenable to this line of reasoning. They just prefer charity (or some form of voluntary coop whereby the members look out for one another) to provide that safety net as opposed to government programs, because those methods can distinguish between poverty despite good intentions or faulty information, and pauperism based on laziness or irresponsibility. I’ve often thought, based on personal experiences, that the best way to avoid poverty is to belong to a house of worship of any form, but you could probably substitute a lot of other collectives for a house of worship and have the same effect (a farmer’s guild for example). In fact, some of the problem I have with welfare programs is they take the need to build those small collective (voluntary) networks away and thus those networks and communities languish (I’m thinking of Putnam’s work Bowling Alone). An obvious example is the early settlers of America like the Pilgrims, who didn’t have forced redistribution per-say, but they looked out for the poor among their community.

Also you keep mentioning Rand. I’m not big on Rand. Never read her Although I’m sure we’d agree on some things, it’s not even close to all things.

As fun as this has been, this is going to be my last round of replies. I can’t keep going on like this forever.

I don’t know what to say other than go back and read the example again. Even if consumers send all of the correct signals with their purchases, they still end up losing in this situation, because Company A is manipulating the market via market power. If Company C enters the market, if they don’t have a truly gigantic war chest of capital to dump into the project (which is basically how Intel finally broke the Japanese RAM manufacturing monopoly in the 1990s), they’re going to have the same thing happen to them that happened to Company B, and it has nothing to do with service or brand loyalty or what not. I don’t know how to demonstrate that more clearly. This is how monopolies get formed and maintained on a regular basis (in addition to other market-based market warps), through the exertion of market power. I feel like you’re not seeing this because you really don’t want to see it, and I can’t do much about that.

The welfare/charity dichotomy is largely a false one, and in my experience usually turns out to be nothing other than a fig leaf for those who don’t like welfare and don’t want to do much charity either. Most houses of worship that I know of that do meaningful service outreach (and given that my wife is a pastor, I know a lot of them), regardless of their political affiliation, are screaming for Medicaid expansion in their various states because of how much better it would make so many peoples lives, along with things like TANF expansion and improved public transit and better housing policy. It’s folks who don’t bother with much charity who are happy to preach about the greater benefits of it versus government assistance. Once you start trying to address the problems, you see how overwhelmed private charity currently is by desperate need, and you stop worrying so much about what the “best” solution is.

On Rand — I talk about Rand and Hayek a lot because in my experience their theoretical framings underpin about 97% of what libertarians talk about. Hayek is interesting and thought-provoking albeit with a few key myopic points (again, market power, pace Orwell), and still stands as a crucial critique of the Keynesian management state writ large. Rand is the source of the more noxious stuff — the supremacy of self-interest, the atomized individual, the rational and efficient market, the rejection of Kant’s limits of pure reason, etc. It’s not just the disapproval of charity, the atheist absolutism, and weird rape fetish stuff. Objectivism is just as rotten but in a more pernicious way.

I guess it’s part of a larger argument, that if libertarians are ever going to turn the corner and become useful activists achieving their own stated goals of a more just society based on individual liberty (a noble enough cause), they need to a) get out of the theory and into empiricism, b) understand the way power is wielded via wealth and the marketplace, and c) ditch the Rand crap. Then we’ll really be on to some fun conversations.

It’s been fun. I’ll read any last replies but got to cut it here.

If what you say is true, I’d be your ally in this. I’ll refuse to advocate using any form of coercion to get the co-ops up and running, but I’d be more than happy to pitch a model that properly assesses the risk in co-ops, market the idea to customers, market the idea to those with capital, etc.

“The broad reasons are that even though coops are perfectly good at returning a profit to investors, they violate some of the assumptions of the way that highly capitalized investment institutions assume in the market, and deny those institutions access to many of the soft leverage points within the organization.”

Well, I’m afraid neither you nor I can fix stupid. If people refuse to make a better return on investment only because they are blinded by their assumptions, or have a thirst for control (access to soft leverage points), not sure what you can do other than lead by example. Coercing the investors won’t work out in the end, and it’s hard to persuade people who have poor assumptions. The best way to learn for these people seems to be experience. They have to sit there and watch the co-ops outperform their ideas before they’ll buy in. Reminds me of the tech world and PCs in the 1980s.

Briefly coming back to this, it would probably help if I could drop the “Company A” stuff. If you want the more detailed story, my twitter handle is the same as my username on Disqus. If you don’t care much, that’s fine, but putting some actual store names to this would be good, and I don’t mind sharing that in a non-googleable forum.

“areas with bad transit are that way usually because of highly liberalized zoning and land use, leading to auto-centric development”

Quite the opposite! Many of those areas are highly restrictive in zoning and land use, which are specifically designed to promote cars as the one and only solution– ie density caps, parking minimums, and so on.

Those extremely high rates of income tax were only worthwhile because capital controls were in place (which prevented the rich from simply moving their money abroad), and the government was probably only able to impose them at all because the American rich then had the Nazis and Japs breathing down their necks.

consider creating a bitcoin type digital currency based on the unit of public opinion and up-voting and civic activity. Alternative currencies can be used to leverage democratic value. Imagine if you could vote your public opinion with the convenience and power of spending cash.

expand your idea of an economy. Money is just an accounting system to track and manage value of capital goods. A solution is to give the voting system all the power and affordances of money. Let people vote on facebook and let people save their votes and use them all at once and let people spend a little of their vote on little things or a lot of their vote on big things.

to compare this imagine if money, such as the USA dollar had only one denomination, could only be spent at a government poll on an election day, and you could only buy things from a 6 page multiple choice list where everything costs the same amount. the government gives everyone gets a single dollar (aka vote) for every purchasing opportunity (aka election) and people are not allowed to barter or trade dollars. So that’s our current state of accounting (aka money) for the will of the people.

what we need is a “will of the people” economy to balance our “capital goods” economy. Make a digital currency similar to bitcoin based on up-votes or public opinion that can do everything money does for a unit of goods and the public will be better served.

We actually already have examples of currency that represent the will of the people and they work pretty good. housing vouchers are better than not having housing vouchers. Food stamps, carbon credits, and facebook likes or redit gold are all examples of currency that expresses more than just the generic market equilibrium value of capital goods while excluding all else as externalities.

Well, money helps those who can capture money from others best. Money doesn’t grow like plants, it’s just an accounting system used to calculate ownership.

ps. wikipedia “just world fallacy”

you wrote. . .”This means allowing people to cast votes via their money or labor as to what they actually want, not what the powerful wish to give them.”

Not necessarily. People could cast votes with their votes. People could earn money with their votes. Votes could be made a form of currency and exchanged and converted and banked and saved etc.

“An issue becomes how adjust rents so that land lords make a reasonable profit and that there is incentive to improve buildings and create new housing.”

There’s every reason to argue that government as the creator of money and ultimate owner of money and the public as well should have every right to know how it is used. Money is not created by individuals, it’s an institution for the public good so giving private business or individuals the right to use it in secret from it’s creator is not necessary. For poor people this is not a problem because they have little money and but for large corporations or the rich, their should be a requirement of public disclosure on how a public means of exchange is being used.

Right, and that’s true, and problematic in all sorts of ways. But it’s ultimately less problematic than some alternative arrangements for exchange, exactly because money is so impersonal and fungible. But the alternatives are even worse. Allocating privilege by birth? By who your friends are? By whether you’re the right race or gender? Ultimately, it’s still possible for some (not all!) people to accumulate money and use it to buy things. For the people at the top, it doesn’t matter: they’ve got plenty of whatever form of capital they need to get what they want, whether it’s money or influence, and the ability to exchange one for the other. For those at the very bottom, they’re going to need explicit help either way. But for those in the middle, money is still better and easier to get and spend than any alternative.

Do we really need a technophilic solution to this? We have democracy. We have voting. We have duly elected local governments. We have democratically run cooperatives. Those are well-established and well-understood economies of power which are fundamentally more egalitarian in nature than the pure money economy. A little bit of tending to those goes a long way.

Yes, money is a refined social custom. So is voting. There are consumer and worker cooperatives in increasing numbers (John Restakis I think claims 800 million members worldwide), plus there are Rotary clubs, Oddfellows halls, Elk lodges, neighborhood associations, churches, non-profits, honor societies, anarchosocialist collectives, libertarian collaboratives, political parties, and so on. “Tending” involves finding a few of those you believe in and putting some effort to help and grow them.

These don’t get a lot of play in the blogosphere of abstract thoughts and conjectures because they’re not easily reducible in the theories that are popular up here. But that’s not the fault of the cooperatives or organizations or parties.

“Voting is a old social custom, but it hasn’t changed much in thousands of years compared to money.”

This is ridiculous on its face. Thousands of years ago voting didn’t exist in any form remotely like what it looks like now. The only place it did exist was in one city in Greece, and there it was an in-person assembly of wealthy men doing direct voting. Representational democracy, which is the current dominant social form, is generally held to have been invented by the Reformed movement in the Christian church in the early Enlightenment period, and later adopted as a form of governance. Proportional representation, electronic voting, IRV, heck, even Roberts Rules, are all distinctively modern inventions. And this doesn’t even get into universal suffrage in its various forms. Voting has been and continues to innovate at, historically speaking, a blindingly fast rate, all the while evolving and developing as a continuous and well-respected social phenomenon.

By contrast, money has changed only marginally since coinage was first invented. The major changes I’d mark would be the the Mongol development of the paper note of trust (enthusiastically reported back to Europe by Marco Polo himself), the creation of the regulated banking system, and the development of electronic currency transfer. Borrowing and lending aren’t innovative, they’re so old they’re referenced in the oldest sections of the Old Testament. The financial innovations we’ve been treated to lately are largely derivatives trading and the hyper-liquidity of the market, which I would say have next to no public good value and are only of benefit to highly connected investors.

Except that transferability is at the core of money’s tendency towards inequality. If voting is a unit of power (what else would it be?), then the transferability becomes a means for fractionally advantageous transactions, leading to some individuals or parties who are particularly good at the transactions accumulating lots of the votes, at which point they have the power to alter the rules of the system in their favor. Transferability of voting is so antithetical to democracy that we have specific laws against it — you can’t sell your vote.

One of the key aspects of votes are that they’re inalienable. Break that, and you don’t have some kind of democratized currency, you just have a plain old currency.

@MTBindurham, you make some good points that I can only add caveats and modify.

1) Transferability is probably just one of the requirements to make money increase the tendancy towards innequality. other requirements to make money tend towards innequality are positive interest rates that make holding money more profitable than investing money. Some currencies have used demurage wich is a negative depriciation on any form of held money. So under Demurage, the more money you have the more money you lose. The solution under demurage is to lend your money out to others but others don’t want to hold the money either so they buy things. But thinks lose their value over time too in most cases, such as food or buildings require handling and storage and maintenance. So it only helps decrease the loss of your money if you invest in things you can afford to maintain. So who has time to maintain a house? the house owner does so the house owner has saves value by putting money into the house, but doesn’t only that only works with a modest low maintenance house. for a larger house you have to pay staff to maintain.

2) a vote currency can be inalienable according to the block chain specefications. You could make it completely non-transferable and non-divisible by design and then it works almost like a voting. Make it limited to being used at certain times of the year and for certain ballot initiatives and that can be done with an alternative digital currency too and then you have exactly what votes are. So for example you can give everyone digital wallet free (cheep on scale of usa) and when they walk into a poll they get enough digital vote currency to vote once on any issue. and we can set up a block chain to enforce that. and then all the money disapears after election day. We can do that too. BUT we don’t have to do that with a digital currency. It’s easy to change as a digital currency how we vote so that we might be able to split our vote or save our votes or combine our votes so we can vote on what we care about when we care about it and vote how much we care about an issue.

3) Transferability is probably essential to some form of scaling up voting and creating concentrations of power. And I think we want concentrated political power, but not based on a persons ability to collect money as is currently used to concentrate political power. Political power should be concentrated in political leaders, like thinkers and musicians and others that the public votes for on facebook and american idol and other forms of voting. So in the event that adding transferability adds to political innequality it will at least be political inequality based on ability to capture the public vote instead of ability to capture the public money. So for example elizabeth warren got lots more votes/dollar than her opponent in her senate race. BUT she currently can’t use those votes for much of anything. wouldn’t it be great if she would use those votes for advocating against TPP? I know she’d want to and the people who voted against her would like her to. Maybe a demurage form of transferability, so that every time a vote is transfered it loses some of it’s value? or we could even do variable currencies, like a “public voting coin” that’s used by the public and when used to vote on something it becomes a “voter support coin” that can be used to represent voter interests in congress.

we can even create very specific coins such as a housing construction advocacy coin to measure the support for housing construction advocacy in san francisco. We could give out housing construction coins from the central bank of housing construction advocacy groups (there’s a lot of them in san francisco) and then labor unions who sometimes apose housing construction if it doesn’t use labor unions, can use housing construction advocacy coins to negotiate agreements with housing construction companies who need their projects to be advocated for to get public support to sway the housing planning commision. Currency makes that kind of trading of advocacy value easy and allows cooperation in a way that bartering in a partnership agreement for reciprocal unquantified benefits and returns in kind specified and itemized make very difficult to agree on and enforce and manage.

This is an extremely simplified view of gentrification and the economics involved and has also irresponsibly excluded the issue of race which is where much of the injustice lays in this conversation

Capitalists, oops I mean Market Urbanists, trying to tell us that the problem isn’t capitalists buying cheap and then selling high. Oh no, it’s that the capitalist can’t go into the high priced areas and buy there.

Oh no it’s not the fact that Capitalism: the private ownership of the means of production (aka, private property) get to dictate what happens to that property. It’s the rich people not wanting to sell their property to other rich people.

So they know, e.g., that the neighbor’s cars up on blocks ain’t going nowhere just because they’re moving into the neighborhood.

The solution is …radical liberalization of zoning in already wealthy areas.

Where has that ever happened? (Aside from the fact that in some places the wealthy are building on top of themselves, not displacing middle income or poor.)

There are two underlying problems. This article addresses one, inequity in economic and political power. Missing is any consideration of capitalism’s need for growth. Or even just an acknowledgement that gentrification is directly related to growth—stable or shrinking cityies do not gentrify. I recommend Domhoff’s essay for an explanation of the connection between capital and growth in urban housing markets.

it was good post and thanks for sharing it
Women’s day wishes

I
think this guy is just interested in getting rid of zoning. The
argument leading up to his conclusion didn’t seem to reflect what’s
happening in my area.

The lie lies in the myth that more market priced housing will allow costs to drop due to trite supply and demand anecdotal platitudes…It’s all still out of reach of most people, especially those with roots to the areas they’re being kicked out of due to financial warfare. When the zoning is utilized to allow this the city is then complicit in class warfare, just as they were when all of the highways were put right through black neighborhoods and districts or are when oil pipes are routed around white populations to snake around and go through Native American land. With around six times the houses as humans in this country, constant building is not necessary. We’re losing all of our great architecture and culture just to keep building (structures of inferior design, craftsmanship and materials) in order to appease an insatiable, black hole economy of destruction. https://www.facebook.com/groups/stopdemolishingvintageportlandhouses/

And if you wanted a unit in the USSR all you had to do was report on a neighbor to the authorities. You need to talk to people who actually lived under that regime.